Question

Describe a scenario in which a trade surplus benefits an economy and one in which a trade surplus is occurring in an economy that performs poorly. What key factor or factors are making the difference in the outcome that results from a trade surplus?

Answer 1

A trade surplus benefits a thriving economy by increasing export revenues, job creation, and economic growth. However, it can be detrimental to a poorly performing economy by indicating weak domestic industries and over-reliance on exports.

Step-by-step explanation:

A trade surplus benefits an economy when it is occurring in a thriving economy. For example, if a country has a strong manufacturing sector and produces goods that are in high demand in the global market, a trade surplus can lead to increased export revenues, job creation, and economic growth.

On the other hand, a trade surplus occurring in an economy that performs poorly can indicate a lack of domestic demand and weak domestic industries. This can result in an over-reliance on exports, which may make the economy vulnerable to global market fluctuations and could lead to economic stagnation or decline.

The key factors that make a difference in the outcome resulting from a trade surplus are the overall health and diversification of the economy, domestic demand, competitiveness of domestic industries, and the ability to invest surplus funds wisely.